Break Even Analysis

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What is break-even analysis?
The comparison of a firm's revenue with its fixed and variable costs to identify the minimum sales level needed to make a profit
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What is a break-even chart?
The graph used to show break-even analysis?
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How do you produce a break-even chart?
1. label x axis 2. label y axis 3. plot fixed costs 4. plot total costs 5. plot sales revenue 6. find the point where the two lines cross which is called the break-even point
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What are the advantages of a break-even chart?
1. It can determine the break-even output 3. It can make break-even comparisons e.g. alternative locations 3. It may help influence bank decisions for loans
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What are the limitations of a break-even chart?
1. It is not easy to estimate costs 2. Costs and prices might change frequently which means a new graph is needed 3. It assumes all the products have sold 4. Costs and revenue might not always be straight lines
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Other cards in this set

Card 2

Front

What is a break-even chart?

Back

The graph used to show break-even analysis?

Card 3

Front

How do you produce a break-even chart?

Back

Preview of the front of card 3

Card 4

Front

What are the advantages of a break-even chart?

Back

Preview of the front of card 4

Card 5

Front

What are the limitations of a break-even chart?

Back

Preview of the front of card 5

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